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Bass Strait gas decline to expose Victorian manufacturers

Bass Strait gas decline to expose Victorian manufacturers

A forecast sharp drop in gas output in the Bass Strait opens up a 25 per cent gap in local gas supply for the southern states next year and has underscored
the risk of price hikes for Victorian manufacturers as they become increasingly reliant on Queensland.

It comes as Origin Energy reported a new gas sale deal to supply tissue maker Kimberly-Clark in South Australia, which is understood to be well above
the "benchmark prices" quoted by the competition regulator, confirming that manufacturers expecting those prices are being unrealistic.

Output from south-eastern Australia's dominant source of gas, the Gippsland Basin project (GBJV) owned by Esso and BHP Billiton, is set to plunge by
26 per cent next year, the competition regulator's latest outlook revealed.

The drop comes despite the recent start-up of Esso-BHP's $5.5 billion Kipper Tuna Turrum project and the venture's recent blind tender for gas,
which the Australian Competition and Consumer Commission described as "unprecedented".

It creates a large shortfall in gas in the southern states that will need to be filled by Queensland, given the Cooper Basin output is largely committed
to Gladstone's LNG projects.

'Significant gap'

On the ACCC's numbers, the Gippsland Basin venture's output falls to 244 petajoules next year, from this year's record 330PJ, due to ageing fields.
It puts total southern production in 2018 at 348PJ, compared to demand of 464PJ.

"While this level of production is line with GBJV's production rates over 2011-15, this has left a significant gap in the supply needed to meet the
needs of domestic users in the southern states," the watchdog noted.

Esso wouldn't confirm the figures saying only that forecast production for 2018-20 is in line with average rates in 2011-15.

"We continue to assess opportunities to bring additional supply to the domestic market with our efforts focused on both near-term and longer-term supply,"
an Esso spokesman said.

He noted that while the Esso-BHP venture supplies "a significant proportion" of the eastern states market, "we only hold 5 per cent of eastern Australia's
high confidence gas reserves".

That has left Queensland the only source of surplus gas for the east, with other new developments still years away from start-up. Transporting Queensland
gas south to Victoria adds about $2 a gigajoule, according to pipeline owner APA Group, although Shell and Santos put the figure higher.

"Everyone knows [the Gippsland Basin production] is going down because they are running out of gas," said Garbis Simonian at NSW gas buyer Weston Energy.